Swiss banking giant UBS has agreed to pay the United States $780-million in fines for a covert tax-evasion scheme that mirrors a similar, unlicensed campaign the bank conducted in Canada.
In a 16-page agreement that was unsealed by U.S. prosecutors yesterday, the bank admitted to providing counter-surveillance training to a team of Switzerland-based bankers who made regular trips across the Atlantic and encouraged wealthy American clients to hide their fortunes from tax collectors.
The agreement ensures that the bank will avoid prosecution, but only after paying the hundreds of millions in fines and handing over the names of a number of account holders. The exact number of account holders to be exposed has been sealed by prosecutors, but the court documents indicate that 17,000 Americans held these so-called “undeclared accounts.”
The year-long investigation by the U.S. Department of Justice has also unearthed revelations about the bank's clandestine operations in Canada – none of which have received any public mention from the Canada Revenue Agency or Minister of Revenue Jean-Pierre Blackburn.
According to internal UBS records obtained by U.S. investigators, as well as several sources, the bank regularly dispatched a team of Swiss bankers, known within UBS as the “Canada Desk,” to meet with clients in Vancouver, Toronto and Montreal, among other Canadian cities. The bank has a licensed, Canadian subsidiary that manages the portfolios of well-to-do clients across the country, but the subsidiary says that members of the Canada Desk – led by a Zurich-based banker named Edith Roellin – never set foot in the subsidiary's branches.
Despite the Canada Desk's discreet dealings here, it did considerably better business than its licensed counterpart; Internal bank balance sheets obtained by U.S. investigators show that Canadians stowed away as much as $5.6-billion with the Canada Desk as of October, 2005. The licensed business held less than half that – $2.6-billion.
The unsealing of the agreement yesterday revealed another Canadian connection. In August, 2004, UBS managers met in Switzerland with a group of lawyers and accountants in order to devise “structures and other vehicles for clients who wanted to conceal their UBS accounts and income derived there from tax authorities in the United States and Canada,” the U.S. court filings show.
Officials with the Canada Revenue Agency have repeatedly declined to comment on the issue. Mr. Blackburn was unavailable for comment yesterday because of a cross-country flight, a spokeswoman said.
The agreement between the bank and the U.S. government also highlighted the bank's efforts at courting influence in the countries where it operates.
According to the agreed statement of facts, a UBS manager, who was not identified, instructed Swiss bankers to tell their American clients that the bank “has better lobbying possibilities in the United States than any other foreign bank and would not be pressured by United States authorities to disclose the clients' identities.”
Among the bank's stable of political hires is former Republican senator Phil Gramm, the vice-chairman of UBS's investment bank operations in the U.S. Michael Wilson, Canada's ambassador to the United States and a former federal finance minister, also served as the chair of all UBS operations in Canada before his appointment to Washington in 2006.
Mr. Wilson has turned down repeated interview requests about the ongoing investigation in the United States and the Switzerland-based Canada Desk. A spokesman for the ambassador said it “wouldn't be appropriate” for Mr. Wilson to comment.
The massive fines announced yesterday, which are to be paid according to a strict, 18-month schedule – and are not tax deductible – are the culmination of an ever-widening probe that began with a single UBS insider.
Last May, investigators arrested Bradley Birkenfeld, a former UBS banker who for years had been flying back and forth from his home in Geneva to the United States, where he wooed potential clients. Months before his arrest, though, Mr. Birkenfeld quietly began co-operating with authorities, supplying them with internal UBS records and bank-issued training manuals on how to evade the suspicion of border guards.
In June, Mr. Birkenfeld pleaded guilty to conspiring to defraud the U.S. government, and is due to be sentenced this spring.
